Small businesses are the backbone of any economy. They drive innovation, create jobs and add value to the society. However, running a small business can be a challenge, especially when things go wrong. Economic downturns, unpredictable markets, and unexpected expenses can often put a strain on small businesses. Unfortunately, sometimes the situation gets out of hand and bankruptcy becomes the only option.

What is Small Business Bankruptcy?

Bankruptcy is a legal process that allows individuals or businesses to discharge their debts to a certain extent. Small business bankruptcy, specifically, is a legal process that allows small business owners to reorganize or liquidate their debt. It is important to note that small business bankruptcy is different from personal bankruptcy. A small business owner cannot file for personal bankruptcy to discharge their business debts.

Types of Small Business Bankruptcy:

There are two types of small business bankruptcy: Chapter 7 and Chapter 11. Chapter 7 bankruptcy is also known as liquidation. It is applicable when the small business is no longer sustainable, and all assets need to be sold to pay off creditors. On the other hand, Chapter 11 bankruptcy is also known as reorganization. In this type of bankruptcy, the small business owner is given a chance to reorganize the business and come up with a plan to pay off creditors over a period of time.

How to File for Small Business Bankruptcy:

Filing for bankruptcy can be stressful for small business owners. The first step is to consult a bankruptcy lawyer who specializes in small business bankruptcy. The lawyer will guide the small business owner through the process and help them understand their options. The small business owner will need to provide the lawyer with all the necessary financial information, like tax returns, bank statements, and profits/loss statements. The lawyer will then file a bankruptcy petition with the court.

What Happens After Filing for Small Business Bankruptcy:

Once the small business owner files for bankruptcy, an automatic stay is put into place. This means that all debt collection activities, like phone calls and letters, must stop immediately. The next step is for the bankruptcy trustee to schedule a meeting of creditors, where the small business owner will have to answer questions about their finances. After this meeting, the small business owner will need to propose a reorganization plan if they filed for Chapter 11 bankruptcy, or a plan for selling assets if they

Small business bankruptcy is a last resort for small business owners who are struggling to make ends meet. It is important to work with an experienced bankruptcy lawyer who can navigate the legal processes and help the small business owner come up with the best solution.

One of the biggest challenges faced by small business owners is financial management. Keeping up to date with expenses and generating enough revenue can seem like a daunting task, especially during difficult economic times like we see today. One important aspect that small businesses must focus on is debt management.

1) Reduce Expenses: One of the fastest ways to reduce debt is to cut down expenses. This may require some small sacrifices, such as reducing employee hours or switching to an energy-efficient office, but it will pay off in the long run. Another way to cut expenses is to review your inventory and supplier contracts regularly and make adjustments when needed.

2) Improve Cash Flow: Improving cash flow is essential for any business since it ensures that expenses are paid on time. Always try to negotiate with customers for early payments, generating more sales, or even getting rid of customers who don’t pay on time. You can also consider alternative financing options like invoice financing or a business line of credit to help you meet your cash flow needs.

3) Be Smart With Debt: While it’s important to try and avoid debt, sometimes borrowing money can be an essential part of growing a small business. However, it’s essential to be smart about it. Always ensure you have a solid plan in place to repay any debt that’s taken on and keep track of the interest rates and hidden fees that may be associated with it.

4) Create a Budget: Creating and sticking to a budget can help small businesses avoid debt by ensuring that all expenses are accounted for and managed effectively. The budget should include everything, from the office space rent and utility bills to salaries and wages. Make sure you track your progress every month to ensure that you’re on target.

5) Seek Good Professional Advice: Finally, always try to align yourself with professionals who can provide sound financial advice. Whether it’s an accountant, bookkeeper, or financial planner, having the right team in place can save you money in the long run. You can get valuable information on how to manage your finances, maximize tax benefits, and identify potential pitfalls. They also ensure that you stay compliant with all relevant regulations.

Managing debt can be an exhausting and tricky task, especially for small businesses. However, you don’t have to struggle with it alone. By following the above tips, you can create a strong financial foundation for your small business and avoid debt. Start by reviewing your expenses, improving your cash flow, and creating a solid budget. Seek professional advice and be smart when taking on new debt.

The iconic retailer is attempting to restructure over $5 billion in debt. Part of the plan is to close less profitable locations.

Added to the list of over 142 locations previously marked to be closed is an additional 40 stores, two of which are in the Sacramento Area. The Sears on Florin Road and Kmart in Placerville are scheduled to close after the holiday season. The added store closures are an attempt to keep the corporation afloat while they try to find a buyer or lender in the restructuring process.

Over 1,200 jobs will be lost in California

Across California, 17 stores will be closed. The company filed legal notices with the state of California showing 1,211 layoffs by the end of the year. As a result, local Sears and Kmart employees have been told their jobs will be eliminated by February 2019.

A spokesman for Sears said plans to liquidate the existing merchandise in the closing stores will result in steep discounts for customers.

Restructuring through Chapter 11

Chapter 11 bankruptcy is frequently referred to as “restructuring” or “reorganization” bankruptcy. By filing chapter 11, Sears Holding Corporation is requesting the courts to give them time to restructure their debts and get a fresh start.

During the restructuring process, the company will operate business as usual while developing a plan on how to negotiate debts and pay off creditors.

If you have lost your job, or other unforeseen circumstances have made it difficult to pay your debts, contact a Sacramento Attorney to discuss your options.

California Hospitals

The sale of the two hospitals, the O’Conner Hospital in San Jose and the Saint Louise Regional Hospital in Gilroy, will be significant as they are responsible for the care of a large number of low-income individuals who live in those communities. With around 87% of the patients receiving Medicare or Medi-Cal, the hospitals are huge assets to the community. A Chapter 11 bankruptcy in California will allow both facilities to remain operational throughout the bankruptcy process.

Santa Clara County Offer

Santa Clara County has officially tendered an offer to buy both the hospitals from the financially struggling company Verity Health Systems as part of their $235 million bankruptcy reorganization. If a US Bankruptcy Court Judge approves Verity’s request to sell the hospitals in December, the company will have the opportunity to compete with any other buyers that may come forward. As such, the bid doesn’t necessarily guarantee that the County will win the auction, but city officials cited in the matter said they feel confident about the competitiveness of their offer.

Sacramento California Bankruptcy

Just like business has debt relief options, the US Congress has afforded individuals who are struggling with debt or insolvency an opportunity to file a California Bankruptcy petition for debt relief. Depending on your income and debt, you may be eligible to have some or all of your unsecured debt legally eliminated under the US Bankruptcy Code. Contact a Fairfield bankruptcy attorney to discuss your situation and options if you have more debt than you could pay off within 5 years.

Any number of issues can arise for a small business, including all kinds of tax liability, tort liability for a personal injury, liability for disabled access issues, and more. Not to mention business can simply be down or fluctuate greatly over periods of time. In these situations it may be a good idea to explore the possibility of filing for bankruptcy protection.

Bankruptcy can be the solution that allows a small business owner to reorganize debts to save the business, liquidate the company, or wipe out personal liability for business debts. Depending on the owner’s particular goals, it might be a good idea to file a business bankruptcy, a personal bankruptcy, or both.

A Chapter 11 bankruptcy is the one most people have heard of on the news. It is typically known as a business reorganization bankruptcy. This type of bankruptcy is typically used by businesses who want to continue operating while in the bankruptcy. This type of bankruptcy can be more expensive and complicated when compared to other types of bankruptcy. But, if the business has less than a certain amount of debt, it can be classified as a small business, which usually can proceed more quickly because there are fewer procedural hurdles over which to jump.

A business Chapter 13 doesn’t really exist in the same way as a Chapter 11 or Chapter 7. However, in a sole proprietorship, the debtor and her business are considered the same entity. In that case, business debts are considered part of the bankruptcy. A Chapter 13 then is designed to allow the debtor to keep all personal property and reorganize debts through a three to five year repayment plan. This could be a great option for sole proprietors who have substantial assets and want to continue operating.

A business Chapter 7 is good for a partnership, corporation, or LLC that is looking to close down, or liquidate, a business. In these cases, the business does not receive a discharge. When a business Chapter 7 is filed, the bankruptcy trustee sells the assets of the business and uses the proceeds to pay creditors. This can be a very attractive option for small business owners who desire to close the business without the hassle of negotiating the disbursement of assets to creditors.

A personal Chapter 7 for a sole proprietor can help close the business and get rid of debts. Or, in the alternative and in the right circumstances, the bankruptcy can get rid of debt and allow the debtor to continue the business free of debt.

Most business owners are not wildly successful on their first try. Often, it takes some rough experiences to figure out the way to succeed. Bankruptcy can offer a way to acknowledge that this particular business isn’t working the way it was supposed to and allows the debtor to make a professional pivot to succeed on the next attempt. Bankruptcy in El Dorado Hills or nearby areas is available for those who need help with their business debts.

1. Gives You a Fresh Start
   The first goal of bankruptcy is to offer people a fresh start. If this is something you have been considering, know ahead of time that bankruptcy can reduce stress due to finances as well as erase any debts that you might have had that were weighing you down.

2. Gets Collectors off Your Back
   Filing for bankruptcy will make it illegal for people to harass you about your debt. They will not be allowed to call you, send letters to your home or place of business, or garnish your wages. When you file for bankruptcy, you will experience a renewed freedom that you might not have had for a while.

3. Keep Your House and Cars
   When you file for bankruptcy, rest assured that as long as you are current on your mortgage and auto loan payments, if you want to keep those things, you certainly can. Many people worry that their homes and cars will be taken away to pay off debts but as long as you are making payments, you will be fine.

4. Put the Past behind You
   A bankruptcy filing is in a lot of cases the perfect solution to major financial problems in a person’s life. While many people feel that bankruptcy ruins a person’s credit, we can assure you that what it really does is allows the person to be reborn with new credit and an opportunity to make better financial decisions in the future.

1. Stop Foreclosure on Your Home

Filing for bankruptcy will stop the foreclosure process the moment your bankruptcy documents are filed. You will be notified by your bank if they plan on foreclosing on your home. A deadline will be given you to either bring your mortgage current or they will foreclose on a specific date.

2. Stop Your Car from Being Repossessed

If your lender is in the process of repossessing your car, a bankruptcy can help you to stop the repossession and even get your car back after repossession. Chapter 7 and Chapter 13 bankruptcy will both allow you to catch up on your loan payments.

3. Stop a Lawsuit

Bankruptcy will delay or stop a credit card lawsuit. An automatic stay goes into effect that prohibits most creditors from trying to collect debts from you. The effect of the bankruptcy on the lawsuit and debt depends on the claim and type of bankruptcy. If you are being sued by your creditors, filing for bankruptcy relief may help.

An ambulance operator, Rural/Metro Corp., filed for Chapter 11 bankruptcy protection last week. The company continues to provide ambulance services but is facing substantial debt.

Rural/Metro is based in Arizona and provides emergency services nationwide. The company missed an interest payment in July, which lowered their debt and credit rating. The company filed for bankruptcy in Delaware; they listed their assets and debts at almost $500 million.

It does not take many missed or late payments to cause substantial problems to the business, which then causes many business to face the possibility of bankruptcy. One of the benefits of bankruptcy is that all creditor actions are stopped when the business files for bankruptcy protection. This includes mechanics liens and repossessions.

Bankruptcy also allows the company to create a debt reorganization plan. In many cases, this plan will reduce interest payments. It may also reduce or eliminate penalties or fees that were accumulated under the late or missed payments.

Filing for bankruptcy protection can significantly turn the ability of the business around to allow it to continue to operate. It can provide the business owner needed relief to prevent the loss of his or her business.

Source: Buffalo Business First, “Rural/Metro to continue services after bankruptcy filing,” Aug. 5, 2013

On July 18, 2013, Detroit filed for bankruptcy. Detroit has approximately $18.5 billion dollars in debt. While the population of Detroit is large (approximately 700,000 people live there), Detroit has lost over half its population from its peak in 1950. Further, it seems that the city is decaying. There are almost 78,000 abandoned buildings in Detroit, and Detroit’s murder rate is at the highest it has been in a long time.

While bankruptcy may be the best answer for Detroit to solve its financial problems, it will not be an easy bankruptcy. Experts believe that the case may last up to three years and that the cost could be in the hundreds of millions of dollars.

Further, there are those who object to Detroit’s bankruptcy filing. In fact, just a day after the bankruptcy filing, a state court judge held that the bankruptcy filing violated the state constitution. While this ruling is unlikely to derail the bankruptcy case, it shows that Detroit has a long road ahead of it.

Sources: Nick Carey, Reuters, ” Detroit files for bankruptcy, stage set for court fight,” July 18, 2013; Susanna Kim, ABC News, ” Judge Says Detroit Bankruptcy Unconstitutional,” July 19, 2013

The San Jose based home improvement chain, Orchard Supply Hardware, filed for Chapter 11 bankruptcy protection recently. The filing includes a deal that may sell 60 of its 91 stores to Lowe’s.

If the deal goes through, Lowe’s may continue to operate the stores as a separate business while keeping the Orchard name. The agreement hinges on Lowe’s winning the bankruptcy auction.

Orchard was founded in 1931. During the recession, annual sales dropped by more than 20 percent. Sales have begun to turn around but representatives from Orchard say that they remain burdened debt acquired during their spin-off from Sears in 2011.

Orchard stores average about a third of the size of Lowe’s. Experts say that even if many of the stores aren’t bought by Lowe’s, the opening of that size real estate will be great for the market. There are many retailers that are in the market for property of that size.

Filing for Chapter 11 bankruptcy can put a stop to all creditor’s actions including mechanics’ liens and repossession. Bankruptcy allows a business to create a debt reorganization plan. This can allow reduced interest payments and reduced or eliminated penalties and fees.

Source: The Sacramento Bee, “Orchard Supply Hardware files Chapter11; Lowe’s may buy at least 60 stores,” Dale Kasler, Jun. 19, 2013

On Tuesday, a bankruptcy judge allowed American Airlines to pay a severance package to its chairman and CEO. This ruling sets the stage for American to exit Chapter 11 bankruptcy and merge with US Airways. The decision still requires the approval of American’s creditors.

American filed for Chapter 11 bankruptcy 18 months ago. They also tried to negotiate with their employee unions to lower operating costs. US Airways and American announced a merger at the end of last year.

The issue holding up the merger was the severance package for the executives. The Bankruptcy Code prevents any severance package given to a CEO to be more than ten times the amount given to the average employee. Generally creditors must approve any reorganization or merger plans.

There are two types of business bankruptcy. One liquidates the business to pay off creditors. The other creates a debt reorganization and repayment plan. Both can help a business get out of a tough financial situation and can provide the business a fresh financial start, like in the case of American Airlines.

One of the major benefits of filing for bankruptcy is that all creditors actions are stopped immediately. This includes liens and repossession. A debt reorganization plan will generally decrease interest payments and penalties or fees are reduced or eliminated.

No matter the situation, if a business is considering filing for bankruptcy, they should consider their options to determine whether it is a viable option. In addition, they might qualify for various form of bankruptcy, so it is a good idea to seek out advice to understand what their best option is.

Source: The Sacramento Bee, “Bankruptcy judge removes obstacle to American-US Airways merger,” Curtis Tate, June 4, 2013

Bankruptcy can give a business owner a means to reduce or even eliminate some debt. It also stops all creditor actions against the company, such as repossessions and mechanics liens.

YBT International, an online marketing company, filed for Chapter 11 recently in Illinois. The company listed their assets at $1.31 million and their debts at $7.18 million. The current business plan is to use the bankruptcy to reorganize and start again.

YBT currently is in agreement with a lender for the lender to provide a line of credit to the company to help pay off the debts.

YBT is an internet-based company that began by selling travel service websites to outside agents. In 2009, the company settled a lawsuit with the California attorney general over deceptive marketing.

In 2011, the company sold its headquarters and surrounding property when it faced a fall in revenue. Substantial management changes and canceled mergers have left YBT in its current economic situation.

Chapter 11 bankruptcy works with the creditors and vendors of the company that filed to create a solution to the mounting debt. Bankruptcy will allow the company to create a debt reorganization plan under the supervision of the court. Bankruptcy will reduce interest payments, and the penalties and fees may be reduced or even eliminated.

Source: St. Louis Business Journal, “YBT International files for Chapter 11 bankruptcy,” Diana Barr, Mar. 5, 2013

Many companies are able to emerge from bankruptcy without previously accumulated debt. This was the case for the Kansas plane maker Beechcraft. This company filed for bankruptcy protection in May. The bankruptcy also allowed the company to dump its unprofitable arm, the business jet operations. The company is now focusing on smaller planes and its military work.

The company is emerging from bankruptcy only two weeks after the bankruptcy courts approved their reorganization plan. They were able to cut their debt and get about $600 million in exit financing from their creditors. About 90 percent of the company is now owned by investment firms. The company has more than 5,400 employees at this time and is hoping that number will hold steady. A potential government contract for military planes may bring in an additional 700 jobs.

Bankruptcy puts an automatic stay on creditor collection actions. This includes repossession and mechanics liens.

The most common type of business bankruptcy if Chapter 11. Chapter 11 bankruptcy allows the business owner to create a debt reorganization plan. This allows for a reduction of interest rates and a reduction or elimination of penalties and fees associated with the debts.

Source: Sacramento Bee, “Beechcraft emerges from bankruptcy protection,” Roxana Hegeman, Feb. 19, 2013

A power wholesaler and its Chicago subsidiary filed for Chapter 11 protection on Dec. 12. The company, Edison Mission Energy, and its subsidiary Midwest Generation have close to $5 billion in debt. The company is based in Santa Ana but filed for bankruptcy in Chicago.

The companies have no plans of laying anyone off. Edision Mission cited low power prices, high fuel costs and environmental regulations as the reasons for its increasing debt.

Edison Mission Energy is owned by Edison International. The Edison Mission president says that he hopes that the company is able to pull out of the bankruptcy as a separate company from Edison International. The power company has close to 1,000 employees and owns over 40 power plants in California, Pennsylvania, Iowa and Illinois.

Chapter 11 bankruptcy allows a company to work with creditors and vendors to create a reorganization plan. In many cases, interest payments will be reduced and penalties and fees may be reduced or even eliminated.

It does not take much of an economic downturn to significantly affect a business. Only a minor change in revenue can cause an owner to juggle payments to creditors. Vendors will begin to cut off supplies, and creditors will begin to harass the owner for their debts. Bankruptcy can provide the needed debt relief for a business to continue operation or at least pay off creditors.

Source: Sacramento Bee, “Power wholesaler files for bankruptcy in Illinois,” Dec. 17, 2012

Chapter 11 of the Bankruptcy Code gives a struggling business a chance to continue as a going concern, while obtaining relief from some debt. Under a Chapter 11 business bankruptcy, some of the business’ debts are canceled. Typically, the company is then either sold, with the sale proceeds going to the creditors, or ownership is given to the creditors whose debts were written off. The idea behind Chapter 11 is that even a struggling business may be more valuable to its creditors as a going concern than as simply a collection of assets to be liquidated.

In THQ’s case, its assets are to be purchased by a private equity firm for approximately $60 million. The sale to the private equity firm may be what is known as a “stalking horse” bid – an initial bid made by a bidder working with the bankrupt company to establish a “floor” for acceptable bids in a subsequent auction. Typically, the stalking horse bidder does not expect to actually buy the bankrupt company, but simply places the first bid in order to prevent subsequent “low ball” bids.

An industry observer has stated that THQ has some games in the works that have the potential to do well in the marketplace. The Chapter 11 reorganization may allow creditors to recover some benefit from sales of those games.

Source: Los Angeles Business Journal, “THQ Files for Chapter 11, Plans To Be Acquired,” Natalie Jarvey, Dec. 19, 2012

Zacky points to the dramatically rising feed costs and heavy debt as the reasons for filing. Zacky is a closely held company and is facing the same fate as many other smaller farms in the California area. Corn and soybean meal prices are at an all-time high, which has lead to significant losses in its poultry operations. Droughts in the United States, South America and Russia are to blame for the increased feed costs. This increase in the price of corn, which is the main in gradient in livestock feed, has lead to Zacky spending almost $2 million a week on feed for 1.9 million turkeys and 600,000 chickens.

Zacky tried to avoid commercial bankruptcy by borrowing heavily in the spring. The company borrowed around $7 million from the trust account that owns half of Zacky. To remain in operation during bankruptcy, the company must borrow $71 million. This debt arrangement is currently being made by a separate Zacky family trust. The company’s goal in bankruptcy is to reorganize the debt and continue operating.

Bankruptcy is a beneficial option for companies in a situation such as Zacky. It stops all collection actions immediately and allows the company to create a debt reorganization plan that will allow it to continue operating. Most of these plans reduce interest payments, and penalties or fees that have accumulated may be reduced or eliminated completely.

Source: Bloomberg Businessweek, “Zacky Farms Files Bankruptcy, Cites Cost of Poultry Feed,” Steven Church and Phil Milford, Oct. 9, 2012

Pacific filed for bankruptcy in 2009 and is in the process of rebuilding. It recently completed another stock offering, bringing in $11 million for the company. This offering was the second by Pacific since July. Both of these offerings sold out in less than a week.

Pacific said that the majority of the proceeds will be used to pay off close to $10 million in loans that the company used to buy back shares in four of its production plants. The additional $1 million will be used for general operating costs. The production plants that Pacific repurchased were acquired by lenders after Pacific filed for bankruptcy. It is common in bankruptcy for assets to be sold to pay off some of the debts the filer had.

Business bankruptcy allows a company to stop creditors from pursuing collection actions and allows the company to restructure debt in order to emerge from bankruptcy a stronger and more financially stable company. Some debt may be discharged but most of it is not, which means that there must a plan in place to begin repayment once the company is out of bankruptcy.

The current issue Pacific is facing is de-listing by Nasdaq. This occurs when a stock’s price dips below a certain price for more than 30 days Pacific has struggled to avoid de-listing for the past several years.

Source: Sacramento Bee, “Pacific Ethanol stock offering brings $11 million,” Claudia Buck, Sep. 27, 2012

The California legislature and Governor Brown recently passed public pension reform that was careful not to affect any current or future recipients of state and local pensions.

This all comes as a result of many cities filing for bankruptcy. For example, the city of Stockton, which recently received bankruptcy protection, wants its bondholders to lose money while still paying almost $30 million each year into public pensions.

The bondholders are asking the court to find the city’s bankruptcy plan inadequate due to the amount still being paid to pensions and the large amount the bondholders will lose under the plan. The court responded that the purpose of the bankruptcy code is to adjust the debtor and creditor relationship to hopefully get the debtor out of debt.

Especially during economic recessions, businesses can quickly fall behind on bills. It doesn’t take much of a change in revenue to end up juggling payments to creditors. But filing for bankruptcy can help a business get through a tough time. Bankruptcy protection can stop creditor collection actions. This includes mechanics liens and repossession actions.

The outcome of most business bankruptcies is a debt reorganization plan. This allows creditors to begin to be repaid but generally also lowers interest payments and may eliminate penalties or fees for late payments.

Source: The Sacramento Bee, “Dan Walters: Bankruptcy ruling could alter California pension law,” Dan Walters, Sept. 17, 2012

NovaSolar was created just three years ago when a large thin-film solar manufacturer was broken into two parts. The portion that has now filed for Chapter 11 bankruptcy protection had taken over the manufacturer’s management and intellectual property divisions. Over the course of the past three years, the company worked to secure several large solar farm contracts. The company also worked toward the construction of a manufacturing facility in China and a research and development facility in Silicon Valley.

Until just a few months ago, the company contended that it was working to secure more contracts and completion of all construction. The foreign facility was to be completed by the end of 2011 and have 10 production lines.

However, the secured contracts and production facilities were not enough to protect the company from several outstanding debts. It has also been speculated that the company’s structure and management too closely mirrored the failed company from which it was created, leading to financial distress.

The company initially tried to limit losses by furloughing employees and halting all construction at both facilities, including the one in California. A Chapter 11 reorganization was ultimately filed this month.

The Chapter 11 filing will allow the solar manufacturer time to organize its finances and work with creditors. While the process receives attention when engaged by large companies, small business can also use Chapter 11 to help with business reorganization and debt negotiations.

NovaSolar’s bankruptcy filing lists $6 million in assets and $14 million in liabilities. While the bankruptcy is pending, the company will be able to work on restructuring without worrying about creditors attaching liens to company assets or interest accruing on the outstanding debt.

Source: PV Magazine, “NovaSolar bankruptcy announced,” Becky Beetz, June 19, 2012